October 2011 - Intro To Business



Intro To Business


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About the Author

Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985.  Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand (which is now part of PricewaterhouseCoopers).  She attended the University of Michigan and Wayne State University.

Gross National Happiness vs. GDP

10-30-2011 4:06 PM with no comments

  image from ingenesist.com 

bhutan tourism

The recent wedding in Bhutan of King Jigme Khesar Namgyel Wangchuck to Jetsun Pema on October 15, 2011 has brought the concept of Gross National Happiness vs. Gross Domestic Product (GDP) into the limelight once again.  

According to the article, "Emulate Bhutan's Way to Gross National Happiness (GNH)" by Soo Ewe Jin (Malaysia Star online), the concept was first developed by the current king's father in 1972. Instead of measuring success and wealth solely on the economic criteria of the GDP, this king also wanted to measure success on the well being of Bhutan's citizens. Over the years, the concept has gained popularity and the concept has spread to economic theory and international rankings (see Gross National Happiness rankings)

GDP is measured in one of three ways, all of which address economic production: the expenditure method, the production method and the income method. The formula for the expenditure method is:

private consumption + gross investment + government spending + (exports - imports) = Gross Domestic Product

A straightforward but comprehensive explanation of all three methods and their components can be found on Wikipedia.

Gross National Happiness can seem more difficult to measure; the issues are addressed in a policy paper by Med Jones of the International Institute of Management. More simplistically, GNH is measured on four parameters, or "pillars": 

  • economic self-reliance
  • respect for the environment 
  • the preservation and promotion of culture
  • good governance in the form of a democracy

These national factors are interrelated and build from the bottom up, as delineated in this chart:

image from document linked below by Pamela Shreiner, page 7

These concepts have been adapted and incorporated into academic business and economic planning. In a paper entitled "Exploring Gross National Happiness Using Balanced Scorecard and Appreciative Inquiry", submitted to the Second International Conference on GNH, Pamela Schreiner provided a restatement of this chart on page 3, as it would apply to an individual business. You can download the graphic as part of the paper (.pdf, linked above).  The content of the graphic--again, to be read from the bottom up--includes:

Financial:                                      Be Profitable

Customers:                                  Increase Customers; Delighted Customers

Internal Business Processes: Decrease Production Time; Increase Production Quality

Learning and Growth:                On Time Data for Employees; Happy Employees

Schreiner also points out that the currently popular decision making models are more holistic than the economics-focused GDP, and are more aligned with the concepts of Gross National Happiness. In the current environment of economic uncertainty, the sustainable models have compelling appeal. This Venn diagram shows everything in balance.

graphic from 14wbpolicyglossary.wufoo.com

Follow up:

1. Access each of the links above until you can answer this question:  What countries rank highest in GNH 2006, according to the article at the MSN Money site? What do these high ranking countries have in common?  How are they the same and different from the United States? 

2.  Where is Bhutan?  What has been its political structure? What is the philosophy upon which the pillars of progress are built, according to Soo Ewe Jin's article?

3. If you want to hear a lecture on this topic, access this video  LINK from the GNHUSA conference, June 2010.  The introduction to the speaker is pretty dry, but hang in there.  The speaker, Eric Zencey, directly addresses GDP compared to measures of sustainable well-being. 

After you watch, answer this question: What are some of the problems with GDP as a measure of economic activity, according to Zencey?

Posted by teri.bernstein

Disney Channel expands to Russian TV

10-28-2011 7:21 PM with no comments


   Mickey Mouse in "Mickey's Message From Mars," ...according to YouTube

I wonder how Donald Duck would sound if he were dubbed in Russian? Would they try to translate "Mickey Mouse"?  I see that some content in Russian is available on YouTube, but those who live in Russia might soon be seeing a substantial increase in what is available.  This week, the Disney Corporation announced that they had finally succeeded in buying 49% of a Russian broadcast TV station that reaches 75% of the Russian TV audience.  This will enable them to establish a Disney Channel in Russia, according to an article in the Media Decoder by Brooke Barnes (NYT). 

Robert A. Iger, Disney CEO, sees substantial room for growth in this new venture. Moreover, the marketing strategy used by Disney involves using the Disney Channel to market other merchandise and create a desire to travel to Disney theme parks. Disney plans to export entertainment content to Russia and also develop new content, as a part of Russia's desire to grow its own entertainment industry. 

Follow up:

1.  Use the internet, if necessary, to understand the difference between broadcast and cable televsion. What has been Disney's experience with respect to Russian cable television, as opposed to this new venture, which is a broadcast television channel? 

2.  According to the Media Decoder article, what other country's market has Disney tried to penetrate without success, due to bureaucracy and foreign media restrictions?  Use the internet to see if you can find out if any other US television station has penetrated that market yet. 

Posted by teri.bernstein

India's ITC company as a role model for long term profitability

10-26-2011 2:32 PM with no comments

image from sukumar-enterprise.blogspot.com: ITC training farmers

Is it necessary for a corporation to be greedy to succeed in today's business environment?  S. Sivakumar doesn't think so.  His article, part of the HBR Blog Network, "What Business Should do about Occupy Wall Street," delineates some of the ideas in the case study, ITC eChoupal: Corporate Social Responsibility in Rural India by Saurabh Bhatnagar and Ali Farhoomand.  [Note: if the link to the blog article expires, it can be accessed in this ARCHIVE ] S. Sivakumar is head of the Agri & IT business group, which is part of ITC, a corporation in India, and he also developed ITC's eChoupal business model, which is the subject of the case study.

  S. Sivakumar

Sivakumar notes that capitalism, as it has evolved in practice, lacks the ability to address issues of economic and social inequity.  Capitalism, unchecked and unexamined, has evolved into a vast majority of "have-nots" surrounding a few "haves."  He believes that this situation has created the growing global unrest that is exemplified by the Occupy protests, and has produced the slogan, "No Bulls No Bears Only Pigs."   The eChoupal model addresses both sustainable social values and long term stockholder profits.  For 15 years, ITC has had multiple business goals: 

  • "societal value creation" through environmental improvements
  • "societal value creation" through improvement of people's lives
  • shareholder value creation

One example of how this works, as described in the Case Study links, is in the creation of pricing transparency for food products.  Previously, (poor) farmers were unaware of the market conditions involving the products they brought to market to sell, and were at the mercy of middlemen who manipulated the prices. ITC set up internet kiosks in villages, so that the farmers would know the true value of their products, and be able to maximize their revenue.  ITC, the ultimate purchaser, still paid a fair price for the goods, but middlemen could no longer make unfair profits.

This balanced approach, which created a better business environment for the producers of the goods while not harming corporate profits of the ultimate buyer, circumvented a pocket of unfairness and profit-taking.  This approach mitigates against the sense of unfairness and hopelessness that has let to the Occupy protests. It would be interesting to brainstorm how the five lessons that are delineated in Sivakumar's article could be applied to large financial and manufacturing multinational corporations elsewhere. 

Follow up:

After reading Sivakumar's article linked to the blog or the archive, answer the following:

1. What environmental successes has ITC experienced over the last 9 years, specifically with respect to water, carbon-footprint, and recycling?

2. What shareholder and related analytic successes has ITC experienced over the same time period?

3. What are the 5 lessons that ITC has learned from implementing the eChoupal business model?

Posted by teri.bernstein

Aim for great products...or just care about the profits?

10-26-2011 2:26 PM with no comments

clip art from columbianews.com

Should a CEO aim for great products or focus on maximizing profits? James Allworth writes about this quandary on the HBS Blog Network: "Steve Jobs Solved the Innovator's Dilemma." Business school education tends to focus on ways to maximize profits--because true product innovation can be "disruptive."  This thesis was addressed in the book, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, by Clayton M. Christensen...and it was one of Steve Jobs' favorite books.

image from dnewsglobal.com

After Steve Jobs was fired from Apple, John Sculley and other professional managers focused on maximizing profits. When Jobs returned in 1997, he shifted the focus to product development.  This, according to an executive who was interviewed by Allworth, was in contrast to Microsoft, which would analyze where revenue was not being maximized, and create a product to fill that niche. Most businesses function more like Microsoft.

The "Innovator's Dilemma" is analogous to a "Student's Dilemma":  Should a student focus on getting the highest grade possible? Or should the student focus on learning the material as well as possible?  A lot of mental energy--and occasionally even some cheating--is involved when the student holds the "A" grade as the highest value.  The end justifies the means.  A student devoting all of their energy toward mastery of the subject matter will have a different experience, and will probably retain the information and the competencies better than the student focusing on the short term goal of the grade. 

So, how do you solve this dilemma? Do you aim for mastery of the subject matter...or just care about the grade?

Grade Grubber: read definition at urbandictionary.com

Note:  The HBS Blog Network can be accessed online for free, but articles are available only for a limited time. If the article linked above has expired, I have it archived  HERE
The HBR Blog Network is also available when you have a paid online subscription to the Harvard Business Review

Follow up:

1.  What does the "Innovator's Dilemma" article say about "disruption," and what causes it, in Allworth's words, to "melt away"?

2.  What Apple product is currently "disrupting" an older Apple product?  Name both products.

3.  What approach do you take toward your courses and your grades?  Why does that approach work for you?  

4.  If you are employed, analyze the approach taken by the company that you work for. Is management more interested in providing a great product and/or great service?  Or is it more interested in the "bottom line"?  What evidence supports your position?

Posted by teri.bernstein

Managing your receipts with an app

10-25-2011 11:25 PM with no comments

image from ehow.com

Nowadays, entrepreneurs aren't "building a better mousetrap." They are building a better "app." A new app called "Lemon" aims to solve a problem that many people find annoying: PAPERWORK. Who likes to file receipts? When pundits make fun of the agony of filing one's income taxes, a classic image is that of a weary taxpayer dealing with a shopping bag full of un-organized receipts. 

The app and the current and future business model is discussed in an article by Ann Carrns on the NYT Bucks Blog:  "Lemon Makes Digital Copies of Paper Receipts." 

image from androidheadlines.com

Here is what this Lemon app can do:


  • copy your receipts in the store
  • file them digitally by category
  • give you an account to which emailed receipts can be sent (Apple and Best Buy are doing this now)
  • provide printed copies of receipts from your account, if you need them for returns or a tax audit
  • save you the trouble of finding and sorting receipts, many of which become less readable over time
  • be a more sustainable alternative to paper receipts


What else might this app do in the future?  Carrns ponders that the account you set up to avoid giving out your email address to a spam-generating retailer might provide data to be aggregated and sold to marketers in the future. 

I was baffled by the name.  But one of the co-founders, Wences Casares, said that "Lemon" was a digital domain he had purchased several years ago, and he likened his product to "making lemonade from lemons." A summarized digital record is the better outcome made from a mess of paper receipts. 

Follow up:

1.  Are you interested in this app? Do you have any worries about privacy?  Do you worry that retailers won't accept your receipts?  How does Mr. Casares respond to questions about the acceptability of a digital receipt?

2.  How do you handle your receipts now? Do you file a tax return and take any tax deductions? If not, have you watched others in your family deal with receipts in a way you might see yourself adopting?


Posted by teri.bernstein

Dream Job or Nightmare? Moving from Plan B to Plan C

10-25-2011 10:41 PM with no comments

Here is Rona Economou, lawyer turned Greek food stall operator. Photo by Evan Sung in the NYT

Do you have a fantasy about quitting your job--or not entering the rat race in the first place?  Do you ponder starting your own business instead? Have you always wanted to run a restaurant or a bakery?  Grow food on an organic farm?  Make artisanal cheeses? Do you think about foregoing a Type A lifestyle and living a more fulfilled life in career Plan B? It turns out that it probably isn't as glamorous as it seems.

In a recent article in the New York Times, Alex Williams puts forth this possibility: "Maybe it's time for Plan C".  He follows the career change made by Rona Economou.  She was working as a Manhattan attorney when she was laid off.  She decided it was time to pursue her fantasy career and live a better life.  She opened Boubouki, a food stall that serves Greek food.  

Unfortunately, instead of living a healthier life-style, she is getting up at 5:30 am to bake baklava and other treats.  She spends her day off, Monday, doing paperwork. She doesn't have benefits or perks.  Several other young professionals-turned-entrepreneurs have had similar experiences.

As Williams puts it: "The dream job is a 'job' as much as it is a 'dream.'

Follow up:

1.  Williams also writes about the experiences of Mary Lee Herrington, Matthew Kang, Charan Sachar and others.  What were their Plan B careers?  How did things work out for them?

2.  What is your Plan A career path?  Do you have a Plan B?  Have you taken a job or an internship in either of these areas?  Have you considered getting an internship in a "fantasy career," knowing it is probably easier to try things out as a student that it might be to quit a job after you've adjusted to the perks of working life? What have you learned from your experiences, or what do you hope to learn before you graduate? 

3.  How does Ms. Economou feel about Boubouki at this point? Does she want to return to her old job?  What about the others?

Posted by teri.bernstein

Filed under:

"Margin Call": a movie about risk (mis)management

10-21-2011 2:35 PM with 1 comment(s)

poster from "Margin Call"

David Denby says in his New Yorker review of "Margin Call" that it is "easily the best movie about Wall Street ever made." It tells the story of one 24-hour period in 2008, when a hierarchy of brokers, analysts and managers at a financial corporation parallel to Lehman Brothers confronts an inconvenient truth. As of this day, they realize without a doubt that Investments that they have packaged and sold and repackaged and re-sold now have no underlying value.  The inflated market price of these financial instruments are about to tumble, and they find themselves developing ethically questionable strategies to try to curb losses to themselves and to their investors and stay alive as a business.  

The compelling relationships depicted in the film dramatize the way that human beings, working as part of an organization, can fool themselves about reality.  The players reinforce the incremental actions of their colleagues--or try to compete with them. In forming a team that focuses on the details of sustaining their business model, they miss the big picture: the portfolios of derivative and other other investment instruments they have packaged are based on faulty assumptions and are nearly worthless.



this trailer and the film was produced by a consortium of independent production companies, (see IMDb) via YouTube

The movie opened October 21, 2011.  Read or listen to other reviews at:

Follow up:

1.  Research the real-life Lehman Brothers situation on the internet.  What was the actual date that paralleled the movie events?  Who were the key players?

2. Read the reviews and/or see the movie.  Who is/are the villain(s) in this situation?  Or is it something in the business environment that you can pinpoint?

Posted by teri.bernstein

Starbucks wants you and me to help create jobs

10-19-2011 7:18 PM with no comments

photo by Paul J. Richards, AFP, Getty Images, on www.scpr.org 

Howard Schultz, CEO of Starbucks, has another good idea: Americans can "micro-lend" to other Americans, thereby providing the funding for small businesses that financial institutions are shying away from in today's economy. This is what small businesses need to create new jobs. In an op-ed piece in the NYT, "We Can All Become Job Creators," Joe Nocera delineates the plan that will be seeded by a $5 million donation by the Starbucks Foundation.

On November 1, 2011, Starbucks and the Starbucks Foundation will roll out a process where they will be the middlemen between customers that are willing to donate money, and Community Development Financial Institutions (CDFIs) that are set up to make small business loans.  Typically, CDFIs make loans to "underserved" populations, so they are in the habit of making loans that big banks generally find too risky or too small to bother with.  To facilitate this plan, Starbucks got connected to an umbrella organization of CDFIs, called the Opportunity Finance Network, run by Mark Pinsky. Customers will make donations to "Create Jobs For USA," a non-profit, and the donated funds will be used as collateral to make 7 times as much money available to lend through the CDFIs. Customers making donations of $5 or more will get a wristband, courtesy of Starbucks.



Maybe that wristband will turn into "the" accessory of the season...or the perfect holiday gift for "someone who has everything." 

Anyway, do the math.  If there are 10 million Starbucks customers, and they each give $5, that's $50 million.  Once that's leveraged at 7 times its value, that's $350 million of funds available for small business loans. Neighbor to neighbor. American to American. 

Sounds like a win-win.

Follow up:

1.  Read up about Microlending at HowStuffWorks.  [The good information is not in the first page of article, but in the numbered articles 1-6 linked from that page.] Also check out Microcredit at Wikipedia.  Who are typical recipients of microlending funds?  Do an internet search to find out the names of the global organizations that support microlending. What person from Bangladesh was a microlending pioneer?

2.  When big banks are involved in making certain small loans (called "banking on bicycles"), what has sometimes gone wrong? 

3.  Can you think of an argument against Howard Schultz's plan?  Has he thought of everything? Has he missed something? Consider what you may have read in one of the supporting articles before you answer this:  What is the absolutely best possible outcome of Howard Schultz's plan? Read the article at scpr.org if you need some help thinking of things that Schultz hasn't considered.

4. Howard Schultz's "big idea" from August was not very well received.  What was it? 

Posted by teri.bernstein

Filed under: ,

A "53% guy" gets a response: Opposing viewpoints about "Occupy Wall Street"

10-19-2011 4:20 PM with no comments

In response to the Occupy Wall Street (OWS) protest movement, a young man recently posted the photo above as part of a "53 percent" website.  This website was set up be parallel to but offer a different viewpoint from the "We are the 99%" stories that complement the OWS movement.

An open internet letter in response to the posting by this particular "53% guy" was featured recently in The Daily Kos.  The letter was written by Max Udargo.  It is remarkable as a "back at you" letter in that it is full of compassion. Because it is written without rancor or judgment, the letter demonstrates tools that we can use in the business world to communicate disagreement without making enemies.  

The points made in the original post by the "53% guy": 

  • he is a former Marine and works two jobs now
  • he worked 60-70 hours per week to put himself through college
  • he hasn't had more than 4 days in a row off in over 4 years
  • he doesn't blame Wall Street for his situation
  • he doesn't think anyone else should blame Wall Street

The points made by Max Udargo, in his response:

  • he has honor and respect for how hard 53% guy works, and for his service as a Marine
  • he doesn't think that the workload assumed by this young man can be maintained when he is 50
  • he thinks that the American dream is closer to the 40 hour workweek
  • sickness or family responsibilities would be difficult to accommodate under the current conditions of the 53% guy's life
  • the 53% guy and all people everywhere deserve better

The letter writer disagrees with the young ex-Marine in a fundamental way, but he has chosen to communicate his disagreement first by acknowledging and honoring the 53% guy's awesome qualities of self-discipline and commitment. Udargo takes the time to explain the ways in which he is on the 53% guy's side. He then explains the principles underlying the OWS movement, and how those principles might overlap with the 53% guy's own values. Udargo steers away from judging the 53% guy in any negative or possibly mis-understandable way. When his tone shows any emotion or judgment, it is directed at the historical actions of financial corporations. Udargo uses the words "we" and " strong ally" to convey where his sympathies lie--with the 53% guy.

Follow up:

1.  What is the fundamental point upon which the 53% guy and Udargo disagree?

2.  What techniques does the 53% guy use to convey his point of view?  How do they differ from the techniques used by Udargo?

3. Think about a recent disagreement that you had with someone at work, at school, or in your personal life. What techniques did you use to convey that you disagreed?  What techniques did the other person or people involved use? How did it play out? 

Posted by teri.bernstein

Entrepreneurial mindset vis-a-vis investments

10-18-2011 9:57 PM with no comments

Drawing and article referenced are by Carl Richards, a certified financial planner in Park City, Utah.
His sketches are archived on his personal Web site, BehaviorGap.com
 and appear on 
the NYT Bucks Blog.  

In a recent NYT Bucks post, "The Surprising Money Habits of Successful Entrepreneurs," Carl Richards addressed the value to entrepreneurs of human capital and financial capital. He defines "human capital" as the ability to earn money, and he defines "financial capital" as our savings and investments. Richards theorizes that rational investors have different goals for these two types of capital:

  • One's own human capital should be concentrated, educated, and compounded. 
  • One's financial capital should be diversified and protected.

Richards has observed that entrepreneurs are very good at managing human capital in creative and focused ways.  This, he thinks, is because personal human capital is an arena that is under the control of the entrepreneur.  In contrast, the stock market is not an arena where an individual can exercise any control.  This does not appeal to the personality type that usually succeeds as an entrepreneur. Therefore, Richards finds that entrepreneurs tend to invest more conservatively, compared to the risk tolerance they exhibit in their primary businesses.

Follow up:

1.  What does Richards call his theory regarding human and financial capital?

2.  What does Richards suggest as ways to improve one's personal human capital?

Posted by teri.bernstein

Can you live on $1000 a month?

10-16-2011 8:41 PM with no comments

A few days ago, there was a review in the NYT Bucks Blog of an online game called "Spent."  [Try the link for yourself if you like, but see my note at the end of the article]  The game challenges participants to see if they can live on $1000 per month. Janet Northern, director of communications for the advertising agency McKinney, says that the game has been played more than 1.7 million times. It was developed by McKinney to raise awareness for a group called "Urban Ministries of Durham," which helps people in need.

Here's how the game works:  First, you accept the challenge.  Then you apply for various jobs--none of which is going to generate much money.  It costs a certain amount to live and to get to and from your job, and the game keeps track of what is in your virtual account.  You are given opportunities to make several personal and ethical decisions along the way--decisions which impact your cash flow and the well-being of you and your family. 

The person who had the original idea for the game, Jenny Nicholson, wanted people to confront what they themselves might do if they found themselves in a situation where no choice looked good.  (Ms. Nicholson grew up in poverty, but now works for McKinney.)

I wanted to try this game,  so I used my Mac and clicked on this link: SPENT    It loaded a page that said "$1000", followed a minute later by a page that said "$0", and then a page asking me to accept a challenge. "Prove it" was the button I was to push.  I tried this several times, but I was unable to make it past this page. Since the link was OK, it may have been that I did not have the correct software installed on my laptop to run the program. I persevered...on different equipment.

On my (ancient) PC-compatible desktop I found that the program ran extremely well.  I failed on my first try to make it through the month without overdrawing my account.  I spent that attempt making decisions in the way I am accustomed to making them in real life.  On my second try, however, I "succeeded"--but I didn't get my toothache fixed and I turned down several opportunities to do the right thing.

Follow up:

1.  Try to link to the program at  SPENT .  Take my advice and try it on a PC.  Are some of the choices ones which you have faced? All things being the same, could you make it through a second month...or did you use up some of the $1000 cushion you were granted to start the game?

2. If you are interested in personal finance, check out the New York Times "Bucks" Blog on a regular basis.  What is the most recent post about?

Posted by teri.bernstein

Insider trader gets 11 year prison sentence

10-14-2011 4:36 PM with 1 comment(s)


[View: :550:0]

WSJ's Law editor Ashby Jones explains Raj Rajaratnam's sentence
(after a 15 second ad...)  WSJ Full Article LINK

Raj Rajaratnam, once the head of a multi-billion dollar hedge fund called the Galleon Group, was sentenced yesterday to 11 years in prison for insider trading. He also has to pay a fine or $10 million and return $53.8 million in ill-gotten gains. Prosecutors had sought a longer term of over 20 years, but the judge was lenient, partly due to Rajaratnam's health problems, which include diabetes and failing kidneys.  He is 54 years old. 

What is "insider trading" and why is it wrong? Basically, insider trading involves obtaining information that, if made public, would influence the movement of stock or other investments that are publicly traded. The person with the information can make investment decisions that are a "sure thing" based on a prior knowledge of events or financial circumstances. This prior knowledge is unfair to other investors.  The insider trader (and his or her clients) can then make money based on this secret knowledge.  Others don't have that chance. 

Rajaratnam built up many relationships over time, and "wined and dined" his contacts and clients extensively.  This diagram of his contacts, titled "Galleon's Web," was published in the Wall Street Journal article:


An interactive version of this graphic is available at this link:  WSJ Galleons Web

For the fascinating story of how the insider trading relationships evolved, and how the case was investigated, read "A Dirty Business" by George Packer from the June 27, 2011 New Yorker.

Follow up:

1. Read the articles to get a sense of Rajaratnam's career path. Where did Rajaratnam get his master's degree?  Who were his employers before he set up his own business?

2. What was the "corporate culture" like at the Galleon Group? Does it suggest anything about top management's ideas concerning business ethics?

3. When did the insider trading investigation begin? What other individuals were initially involved?  Do you think they knew, at the time, that what they were doing may have been illegal?

Posted by teri.bernstein

Filed under: ,

ObamaCare benefit? Blue Shield of CA to return $283 million in excess profits

10-14-2011 3:31 PM with no comments

Partially as a result of the recently passed federal health care bill, Blue Shield of California is again returning excess profits to subscribers, according to stories at Bloomberg and the Los Angeles Times. ObamaCare was written with this provision: insurers must spend 80% or more of their premiums on medical care for subscribers--so that no more than 20% of premiums can go to administration or profit.  Blue Shield, whose premiums skyrocketed last year, made a commitment to return any profits that exceeded 2% of its revenue.  If you do the math, this means that a maximum of 18% of the premiums paid to Blue Shield could go to administrative salaries and other costs this year. This is why they are paying back $283 million dollars, on top of the $167 million they announced in June and paid back this month.

For Blue Shield subscribers, this means that they will see another credit on their December bills, and their payments will be reduced for that month.

Blue Shield CEO Bruce Bodaken claims that the profits came about because subscribers are postponing surgeries. Ironically, according to the LA Times article, these excess profits come in a year when subscribers have also seen an increase in benefits due to ObamaCare.  Mandated now are free services for vaccinations, mammograms and cancer screenings.  In addition, subscribers now have the privilege of keeping their otherwise un-insured adult children on the parents' plan until the kids turn 26. 

Still, ObamaCare has a lot of detractors:


read about the latest push to undo Obamacare at this LINK 


Follow up:

1.  Do you have health insurance?  Do you pay for it privately?  Get it through your own employer?  Are you on your parents' plan? Are you aware that if you are over 18, prior to ObamaCare, you would lose your insurance under a parents' plan in the month your college enrollment fell below 12 units a semester?  Or if your parents did not send in your schedule of classes and transcripts each semester?

2.  How much does your insurance cost per month?  To be more specific: If it is paid by an employer--how much does your employer pay?  What percentage of your monthly income is this cost? What is your insurance deductible per year? If you are from another country that has government-provided health insurance, how is that paid for? 

3.  Have you or anyone you know ever been hospitalized with a major illness?  What was the total cost of that illness?  What would be the financial impact of a major illness or accident if there were no medical insurance?  Would it affect the quality and type of care received, or the outcome of the treatment?

4.  How do employers feel about offering medical coverage as a benefit? What are the short and long term financial issues for employers regarding offering medical insurance as a benefit?

Posted by teri.bernstein

Banking deregulation, the middle class and Wall Street

10-12-2011 12:07 PM with no comments

image from fastcreditcardmerchant.com 

How much money to you think banks made last year from credit card penalty fees alone?  

I'm not asking about interest charges.  I'm asking about the $35 for a payment that is posted a day late. Or another $35 for going two dollars over a $500 spending limit. Sometimes these fees are disclosed only in the fine print that was on the thin sheets of paper that arrived with the first bill...or were part of the box on the computer that had to be checked "I agree" before a person could proceed.  

According to the article, "The Woman Who Knew Too Much," in the November 2011 Vanity Fair, banks made over 22.5 billion dollars in penalty fees alone last year.  And they spent some of those revenues lobbying against bills that would grant additional transparency in financial documents.  In particular, banking institutions have opposed the creation of the Consumer Financial Protection Bureau (CFPB), which was organized under the direction of Elizabeth Warren.  Warren, a Harvard professor, became a champion of the middle class after a "conversion" experience in 1979. The Vanity Fair article, by Suzanna Andrews, tells how Warren set out to prove that Americans who were filing for bankruptcies "were a bunch of cheaters," but found, after an exhaustive study with two other writers, that random misfortune in a life of hard work and sacrifice was the most likely causal factor of middle class bankruptcy. 

Decades of research have put Elizabeth Warren into a position where she is as knowledgable about financial markets and undisclosed practices as the executives at the highest level of the banking and financial markets.  Yet, she does not see herself as a stakeholder in that circle, but rather as a stakeholder in the middle class.  Her special knowledge leads her to believe that markets need to be regulated: 



Markets need to be regulated from YouTube

Of course, not everyone agrees with her. Glenn Beck responded negatively to her comments to an audience in Massachusetts.  Community banks were wary of legislation during the CFPB work Warren did. Warren clarified that she saw community banks as different entities from multi-national banking institutional and investment banks on wall street, in an interview uploaded by GOPFinancialServices.com . It is clear that the financial establishment resists the disclosures and simplifications that Elizabeth Warren is calling for.

Follow up:

1. For those of you who are film buffs, the title of the Vanity Fair article alludes to the Hitchcock film, "The Man Who Knew Too Much," in which a regular family on vacation in Morocco stumble upon an assassination plot. Read the synopsis of the film at IMDb. com, if you have not seen the film.  How might the plot of this film be analagous to the subject matter of the article with a similar title?

2.  According to the article linked above, when did banking deregulation begin to occur?  Has this had any effect on your personal financial situation?

3.  Also according to this article, what is the reality of the banks' financial position since the TARP bailout a few years ago?  And how do the banks "feel" that they are being treated by Congress? Please comment on the reality and the reaction. 

Posted by teri.bernstein

Netflix drops Qwikster split-off plan

10-11-2011 10:05 PM with no comments


        listen to CNBC interview (after ad); transcript included

Will Netlix make up its mind about its business strategy?  In this week's announcement, it looks as though Netflix now intends not to separate out its DVD operations after all. CNBC's interview with Tony Wible of Janney Montgomery Scott Capital Markets highlights many of the comments observers have made in recent weeks regarding Netflix.  Wible was interviewed because he had made a change in his company's recommendation regarding the purchase of stock before the announcement by Netflix that, in response to customer reaction, they had reconsidered their decision to split their streaming operations from their DVD rentals. 

Netflix stock increased 7% on Monday, when the announcement was made, but was down 2.96% on Tuesday, according to the Motley Fool website.  It is hard for investors to trust a company that has seemed so fickle.  Reed Hastings, the CEO, has seemed particularly mercurial in his announcement videos.  Netflix also posted a recent ad for a Consumer Media Relations PR Manager.  The ad requested that the applicant be "a mature, fully formed adult with a happy, well balanced life."  Wishful thinking, maybe?

photo of Netflix CEO Reed Hastings from timesunion.com

Follow up:

1.  What was Tony Wible's recommendation regarding Netflix stock?

2.  What is the Motley Fool's recommendation regarding Netflix stock?

3.  What do you pay per month in movie rentals from any source?

Posted by teri.bernstein

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